Canon, Inc. (CAJ)

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Canon Inc. (CAJ)

Q4 2011 Earnings Call

January 30, 2012 8:00 am ET

Executives

Toshizo Tanaka – Executive Vice President and Chief Financial Officer

Presentation

Toshizo Tanaka

Okay, thank you very much. Good morning or good afternoon ladies and gentlemen, and welcome to Canon’s Conference Call. Please refer to today’s slide and note that all financial comparisons made during my presentation will be on a year-on-year basis unless otherwise stated.

Please refer to slide two. This is today's agenda. Please turn to slide three. 2011 was a very challenging for Canon. Although the global economy continued to gradually recover thanks to emerging markets, we faced numerous challenges such as the earthquakes, the economic troubles in Europe; the yen's rapid appreciation and the Thai flood. Generally speaking, our market remained strong. We did however see sign of the slowdowns in Europe and other regions.

Within this challenging environment, full year's net sales decreased. Despite this, we raised our gross profit and operating profit ratios. Major factors for these achievements include further effort to reduce cost and the expense efficiency. As a result, despite the natural disasters, and the yen’s rapid appreciation, we achieved our second consecutive years of net income growth.

Please refer to slide four. Fourth quarter’s net sales decreased 9.7%, due to the yen’s rapid appreciation and the Thai flood. Operating profit however is increased 14.2%, thanks to 11.5-point improvement in our gross profit ratios and the expense efficiency. For the full year, despite prompt measures to minimize the impact of the natural disasters, net sales and operating profit decreased 4% and 2.4% respectively, reflecting the yen’s rapid appreciation. Net income, however is increased 0.8%.

Please turn to slide five. I will now discuss the disasters in more details. The total impact on net sales and operating profit was 236.8 million yen and 127.5 million yen respectively. When we exclude this impact our result show an increase of 2.4% in net sales and operating profit growth exceeding 30%. This shows enhanced product competitiveness and significant progress made in cost reductions.

Please refer to slide six. I will now compare our full year’s result with our previous projections. Regarding sales volumes, in our Office Business unit, we accelerated production recoveries after the earthquake and made the progress in reserving back quarters. Despite these, we didn’t achieve our target for copiers due to the economic slowdowns, particularly in Europe. We didn’t achieve our target for other printing devices as well. This reflects movement to reduce channel’s inventories amid concerns over economic conditions, particularly in Europe.

In our Consumer Business unit, [down] factors for not achieving our target was, slightly lower than projected unit sales of compact cameras. Additionally, although we achieved our target for SLR cameras, the contribution to our performance was limited, as we gave priority to entry models due to particularly strong demand amid limited production capacities. This also had a negative impact on sales of midrange interchangeable lenses.

As for Industry and Others Business unit, the major factor for this negative figure is a shift of some sales into 2012 due to [earthquake and some delays]. Regarding the others categories, the positive figures under our net sales represent limited price declines. The positive figures under our operating profit reflect this and the expense efficiencies. As for cost reduction, this was basically in line with our projections amounting to 88.3 billion yen.

Please turn to slide seven. I will now talk a little bit more about the cost reduction activities. This slide shows the correlations between our production reform activities, gross profit ratios and foreign exchange rates, since 1986. You can see how the enhancement of production technology has contributed to significant cost reductions.

Despite sales growth through globalization, since 1985 (inaudible) the yen’s appreciation has been constant burden for Canon’s operations. In the 1990s, we started production reform activities, through this we rearrange the step up in profitability. Until around 2008, however there was still or a very high correlation between our profitability and changes in exchange rate through accelerated production reforms advancement in such areas the automations and in-house productions and progressions from cell to man-machine cell productions. Since 2009, we re-arise improvement in profitability despite yen’s rapid appreciation.

2011 was particularly noteworthy because we overcome not only the impacts of exchange rate, but also the disasters to re-arise improved profitability. Our structure has improved to a point we are able to observe the impacts of exchange rate.

Please refer to slide eight. I will now discuss our 2012 projections. This slide shows our assumptions or exchange rate and the One Yen change impact.

Please turn to slide nine. This slide highlights key point regarding our projections. As for the economies in the emerging market, we expect the growth to continue, but at a slightly slower pace. In developed countries due to structure-related factors, we feel it will take some time to see our recoveries particularly in the Eurozone.

Overall, we cannot control significant global economic growth in 2012. As for the exchange rate environment, (inaudible) expected to remain severe. To return to a profitable growth within this severe environment, we are further accelerates the launch of attractive new products and services. This include broadening the new business areas through such product of the Cinema EOS Systems and DreamLabo and expanding our solution business centered on the imageRUNNER ADVANCE series. We also work to totally reinforce our global sales trends.

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